A downgrade would only flow to AAA-states

A global credit rating agency says if it were to cut to Australia's triple-A rating it would only flow-through to the ratings of the AAA states of NSW, Victoria and the ACT.

After last year's federal election, Standard & Poor's cut Australia's rating outlook to negative from stable, worried about the country's pace of budget repair, particularly faced with a more fractured Senate.

However, S&P global ratings analyst Anthony Walker said a one-notch downgrade wouldn't automatically affect Queensland, Western Australia and Tasmania - which are all rated AA-plus - or the AA rated South Australia, .

"This is because their credit ratings are lower than the Australian sovereign and already incorporate our view that their credit quality is slightly lower than that of the sovereign," he said in a report released on Tuesday.

The report aims to address frequently asked questions received from market participants about how a potential sovereign rating downgrade would affect the ratings on Australia's states and territories.

It points out only S&P's rating committee determines any rating action and this new report "does not constitute a rating action".

That will be a relief to Prime Minister Malcolm Turnbull, who now faces an even more divisive Senate with Senator Cory Bernardi due to announce he is quitting the Liberal party to form his own conservative party.